Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. But concerns about claims severity and tightening regulations have tempered enthusiasm, limiting the industry’s gains to 3.4% over the past six months. This return lagged the S&P 500’s 10% climb.
Investors should tread carefully as many of these insurers are also cyclical, and any misstep can have you catching a falling knife. On that note, here are three insurance stocks best left ignored.
Aflac (AFL)
Market Cap: $57.4 billion
Known for its iconic duck mascot that has quacked "Aflac!" in commercials since 2000, Aflac (NYSE: AFL) provides supplemental health and life insurance policies that pay cash benefits directly to policyholders for expenses not covered by their primary insurance.
Why Do We Think Twice About AFL?
- 6.2% annual declines in net premiums earned for the past five years indicates policy sales struggled this cycle
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 9.4% annually
- Capital strength will likely plateau over the next 12 months as Wall Street expects flat book value per share
Aflac’s stock price of $109.51 implies a valuation ratio of 2x forward P/B. To fully understand why you should be careful with AFL, check out our full research report (it’s free).
Markel Group (MKL)
Market Cap: $25.97 billion
Often referred to as a "mini Berkshire Hathaway" for its three-engine business model of insurance, investments, and wholly-owned businesses, Markel Group (NYSE: MKL) is a specialty insurance company that underwrites complex risks, manages investment portfolios, and owns a diverse collection of operating businesses.
Why Does MKL Worry Us?
- Large revenue base constrains its growth potential, as seen in its unexciting 2.4% annualized increases in net premiums earned over the last two years fell below our expectations for the insurance sector
- Projected sales are flat for the next 12 months, implying demand will slow from its two-year trend
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 13.2% annually
At $2,060 per share, Markel Group trades at 1.4x forward P/B. Read our free research report to see why you should think twice about including MKL in your portfolio.
Hamilton Insurance Group (HG)
Market Cap: $2.57 billion
Founded in 2013 and operating through three distinct underwriting platforms across four countries, Hamilton Insurance Group (NYSE: HG) operates global specialty insurance and reinsurance platforms across Lloyd's, Ireland, Bermuda, and the United States.
Why Are We Hesitant About HG?
- Estimated sales decline of 2% for the next 12 months implies a challenging demand environment
- Operational productivity has decreased over the last two years as its combined ratio worsened by 5.9 percentage points
- Earnings per share have contracted by 56.9% annually over the last one years, a headwind for returns as stock prices often echo long-term EPS performance
Hamilton Insurance Group is trading at $26.16 per share, or 0.9x forward P/B. Dive into our free research report to see why there are better opportunities than HG.
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